Payroll oops! FLSA mistakes managers make when calculating overtime

Tess C. Taylor, PHR, The HR Writer As if calculating overtime pay wasn’t challenging enough at times, the Fair Labor Standards Act (FLSA) can throw even a seasoned payroll manager into a tailspin at 300 miles per hour. Why do FLSA mistakes cause so many issues for payroll overtime processing? In this article, we will look at some ways you can avoid the common issues with managing overtime payments in regards to FLSA guidelines.

December 31, 2013

As if calculating overtime pay wasn’t challenging enough at times, the Fair Labor Standards Act (FLSA) can throw even a seasoned payroll manager into a tailspin at 300 miles per hour. Why do FLSA mistakes cause so many issues for payroll overtime processing? In this article, we will look at some ways you can avoid the common issues with managing overtime payments in regards to FLSA guidelines.

Watch Out – You May be Calculating Your Overtime Incorrectly!

There are several reasons why FLSA makes calculating your overtime a little more complex. These reasons may include:

Employers may allow workers to take work home with them and fail to treat these as compensable hours worked.

Employers do not successfully identify, track, record and compensate for employee hours worked “off the clock”.

Employees who are non-exempt may work past their FLSA threshold hours and miss out on overtime for not reporting the extra time.

Employers misclassify workers as exempt from FLSA overtime payment requirements when they are non-exempt status.

Employers forget to include wage revisions for time later added to their payroll record when calculating recovery overtime payments.

Avoiding and Correcting FLSA Overtime Calculation Errors

The good news is that there are several ways to avoid making the above mistakes when calculating your overtime payments as they relate to FLSA guidelines. You can also correct the errors you may have made. Here are some tips.

Carefully and accurately classify your workers under FLSA rules.It’s been said that an “ounce of prevention is worth a pound of cure”, and this is definitely the case when it comes to calculating overtime. You’ll want to review your current employee statuses and ensure that no one’s duties have put them into an employee vs. independent contractor status.

Make it a policy that workers do not get into the habit of working off-the-clock.Managing your overtime payments means educating your management team about not allowing work off-the-clock on a regular basis, even for salaried employees. When workers make it a habit to work off the clock, which ultimately benefits the company bottom line, the company can then be held liable for these hours and lack of overtime payment claims can arise.

Count overtime the correct way according to the FLSA.You may think that you know how to calculate overtime payments, when in fact you have been calculating them wrong all along. According the FLSA guidelines, you must pay overtime for any work hours over 40 per week for eligible employees. This doesn’t mean time over 80 hours (for bi-weekly payment schedules) or time worked outside of the normal schedule.

Remember some compensable work times come disguised in other formats.There are some FLSA overtime payment traps you can fall into when determining hours spent by employees as either personal or work time. Oftentimes, they may be disguised as other activities, such as training events, company meals, travel and sleep time, and even changes in work shifts that require extra hours of work. In addition, shift differentials (and other wage augments) must be considered part of regular hourly pay rates in terms of overtime calculations. Be sure you have a system for tracking these factors, and calculate overtime according to FLSA rules.

If you have questions about how to correct overtime errors or to calculate overtime payments for your employees, the Department of Labor – Wage and Hour Division has a wide range of tools and resources in their Compliance Center that can help your organization get it right.